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Alternative Market Briefing

The Corona Fighters Report 11: Asset managers that delivered in the downturn

Monday, April 20, 2020

B. G., Opalesque Geneva:

Amid the current market turmoil, this is our regular report on hedge fund managers who are bucking the trend.


Don't forget, the first episode of The Corona Fighters webinars is on today at 10am EST. Details below.


Prior issues: Report 1; Report 2; Report 3; Report 4; Report 5; Report 6; Report 7; Report 8; Report 9; and Report 10.


The high vol levels could last several more weeks, if not months

The Capital Preservation and Growth fund is up +13% YTD after returning +10% in March. Managed by Liechtenstein-based ArcInvest, CPG is a volatility-based strategy that capitalizes on swift market moves. The program only uses rules-based trading of liquid derivatives and generates momentum-driven entry signals with exit signals based on time, trend change and stops. It has annualised +16.5% since its January 2016 launch.

"The volatility index (VIX) has become the main gauge for investors to assess the overall health and state of the financial markets," says a manager commentary seen by Opalesque. "The VIX index has continued to soar and has reached new record high levels not seen in decades, 85.47% on March 18th… Any excessive volatility environment basically means three things: ultra-fast price movement, widening bid-ask spreads and reduced liquidity. In other words, one not only needs a very responsive trading system - as signals do change quickly - but also smart execution to get orders filled in fast markets where emotions tend to overtake rational decision-making. Fortunately, this is precisely the mission of a systematic trading approach like our CPG model… The high vol levels of the last six weeks could be with us for several more weeks, if not months. But, more importantly, with our model's predominant focus on strict risk management all of our option positions have a 'limited risk / unlimited return' profile at all times as we are net buyers of options and never have open-ended risk on any trade. As we do not hold futures positions overnight (unless fully hedged by options) this also eliminates all potential gap risks completely."


Everyone needs somewhere to live

The MSS Millennials Property Rental Fund is up +2% YTD after returning +0.75% in March. It has returned +15% since its October 2018 launch. The Fund generates annual distributions and capital appreciation for shareholders by acquiring a diverse portfolio of private rental rector properties domiciled in the UK. It is managed by MSS Capital Ltd.

"As government measures to quell the spread of Covid-19 have depressed economic activity globally, commercial property tenants across a broad range of sectors are struggling to cope with the simultaneous shocks to both supply and demand in their businesses," says a manager commentary seen by Opalesque. "As a result many commercial property funds, facing the prospect of uncertain and potentially dwindling future income streams, are finding it hard to value their assets and have moved to suspend redemptions for investors as a result. It is not clear what lasting effect the current economic turmoil will produce for future commercial property demand and especially for retail space (already suffering from on-line competitive pressures) and office buildings (given the current success of large numbers of office workers now adapting to working remotely).

"By contrast, an allocation to residential real estate offers investors an alternative portfolio diversification opportunity. Everyone needs somewhere to live and there is no virtual substitute for that. The MSS Millennials Property Rental Fund provides high-quality rental accommodation to a diverse range of 18-35-year-old tenants (including students, key workers, young urban professionals) in various locations in England and Wales carefully selected by a robust investment process perfected over many years of successful operation."


Africa: Largely decorrelated from market turbulence

The Scipion African Opportunities Fund (class B) is up +1.5% YTD after returning +0.4% in March. It is managed by Scipion Capital, with offices in Switzerland, Grand Cayman and London.

"We have seen non-resident investors taking out close to USD 100 billion from emerging market stocks and bonds in the last two months- more than three times the amount witnessed after the outbreak of the global financial crisis in September 2008," the manager comments. "Yet many international investors remain in search of portfolio diversification and yields above cash holdings. Emerging markets thus retain an ongoing appeal, albeit not in the sovereign bond market in the short term."

The fund was launched in 2007 and provides cross border short-term self-liquidating loans to finance the delivery, production, and processing of non-perishable commodities. The loans are asset-backed and secured on underlying commodities including 'soft commodities' such as cocoa and fertilizer, base metals, such as iron ore and copper, energy commodities such as coal and gasoil, as well as other non-perishable bulk goods. The fund's borrowers are typically medium-sized companies and can be involved in different parts of the commodity supply chain and include miners, traders, agri-businesses and industrialists located within Africa and in major trading centres. (Past interview here.)


And more…

Another trade finance fund did well this past quarter. Horizon Capital Fund -European Trade Finance, advised by Swiss manager Horizon Capital, is up +1.5% YTD after returning +0.5% in March. The fund is a Luxembourg SICAV-RAIF open-ended fund that aims to achieve an absolute return performance of 6-7% p.a. with low volatility by investing in short-term, self-liquidating commodity trade finance loans secured by physical commodities as collateral. The fund finances commodities such as base metals, energy, and softs. It has generated an annualized return of +6.44% with a volatility of 0.40% since its launch in October 2012.


The Swiss ALP Solid Income Fund (Class B) is up +2% YTD after returning +0.6% in March. It was launched in December 2019 and has returned 2.6% since. The strategy is to invest in a broad range of receivables payable to obliges located in the U.S. The receivables stem from different industry sectors like industrial, health, business services, legal services, and others. The receivables are either purchased at a discount or form the underlying financing transactions. Due to the lack of alternative financing sources, obligees seek to sell or finance their receivables to generate immediate cash flows to meet ongoing operating costs. At the end of March, the fund allocated about 49% to supply chain receivables, 27% to legal receivables, 14% to healthcare receivables and 10% to energy efficiency receivables. The fund is managed by Lichtenstein-based Swiss ALP, founded in 2014. Swiss ALP' other fund, Swiss ALP Constant Cash Yield Diversified, is up +1.7% YTD after returning +0.6% in March, and +35% since its March 2015 inception.


The AlphaSymmetry Institutional (1x) programme is up +6.6% YTD after returning +3% in March. The AlphaSymmetry Purple (2.5x) programme is up +15.5% YTD after returning almost 7% in March. AlphaSymmetry is a formal rules-based trading programme applied to a diversified set of highly liquid futures markets. The overriding tenet of the programme is to balance exposure to momentum or trend-based strategies with exposure to non-trend-based strategies. The CTAs are managed by EastEdge Capital, founded in 2017 by Fraser Thomas, a veteran of the trading desk at Mizuho Bank in London. Alpha Symmetry was deployed successfully at the bank over two sectors (FX and Rates), consistently ranking in the top decile of a relevant peer group of CTAs and hedge funds.


The Alternative Commodity Absolute Return (ACAR) strategy is up +11% YTD after returning +6% in March. The strategy applies modern CTA technology to a diversified set of markets which lie at the periphery of the established futures landscape - markets which are less saturated with speculative capital; exhibit intrinsically low cross-correlations; earn high 'carry'; and present significant barriers to entry. It has annualised +17% since its March 2017 launch. It is managed by New York-based Gresham Investment Management. (See past interview: "Gresham evolves - the long-only firm launches new hedged strategies" here.)


***

Disclaimer: This is not investment advice. Opalesque has not verified this information and gives no warranty of accuracy or completeness. Past performance is not indicative of future results. See our Terms & Conditions for more information.

***


WEBINAR:

- The Corona Fighters: Meet the asset managers that delivered during the meltdown

Episode 1: Monday, April 20th, 10 am EST

Opalesque will present several investment managers who will give a succinct presentation on how and why their strategies delivered positive returns and/or protected during the Corona led market meltdown, with Q&A session.

For investors only - register now as seats are limited: www.opalesque.com/webinar/corona/


We have also opened the registration for Corona Fighters - Episode 2 on Tuesday, May 19th, 10am EST

Register now to secure your spot here: https://www.opalesque.com/webinar/#u3

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